November 4, 2020 – Further to the Court’s bidding procedures order [Docket No. 208], the Court hearing the Town Sports International cases has approved the $84.7mn sale of substantially all of the Debtors’ assets (“Sale”) to New TSI Holdings, Inc. (the “Stalking Horse Bidder”) [Docket No. 639]. The asset purchase agreement (the “APA”) governing the terms of the sale was attached to the Order as Exhibit 1.

The Stalking Horse Bidder is an entity formed by prepetition lenders Tacit Capital LLC (“Tacit”) and an ad hoc group of further prepetition term lenders (the “Ad Hoc Lender Group”) who also together agreed to provide the Debtors with $32.0mn of debtor-in-possession ("DIP") financing.

On October 26th, the Debtors notified the Court that, absent any further qualified bids, they had cancelled a scheduled October 28th auction and designated the Stalking Horse Bidder as the successful bidder. The winning $84.7mn bid includes an $80.0mn credit bid and cash to cover both a $1.0mn recovery pool for general unsecured creditors and wind-down costs. 

Further Background

The bidding procedures motion [Docket No. 160] states, “The Debtors commenced these chapter 11 cases to implement a value-maximizing going-concern sale of their core operating assets, which will, among other benefits, preserve jobs for employees, tenants for landlords and a go-forward trade partner for vendors. As described in the motion seeking post-petition financing filed contemporaneously herewith, Tacit is providing the Debtors with post-petition debtor-in-possession financing (the ‘DIP Financing’) to fund these chapter 11 cases, including the sale process contemplated by this motion. In connection with the DIP Financing, Tacit is working with an ad hoc group of the Debtors’ prepetition term lenders (the ‘Ad Hoc Lender Group’) to submit the Stalking Horse Bid, which is a going-concern bid for the Debtors’ operations. The Stalking Horse Bid is a credit bid of the amounts outstanding under the Prepetition Facility, which credit bid the Ad Hoc Lender Group has agreed to cap at $80 million. Additionally, the Stalking Horse Bidder retains the right to credit bid amounts outstanding under the DIP Financing facility."

Key Terms of Stalking Horse Purchase Agreement

• Sellers: Town Sports International, LLC
• Buyer: An entity designated by Tacit and the Ad Hoc Lender Group
• Purchase Price: Total consideration consisting of (i) the assumption of the Assumed Liabilities, (ii) the credit bid in an amount then-outstanding under the Prepetition Senior Secured Debt, in an amount equal to $80.0mn (the “Credit Bid”), and (iii) the amount, paid in cash, equal to $1.0mn payable to general unsecured creditors; (iv) an amount, paid in cash (in an amount not to exceed $3.7mn), equal to the Cash Shortage to be used solely in connection with the Wind-Down (together, the “Purchase Price”); provided, however, that Buyer reserves the right to increase the Purchase Price, subject to the Bidding Procedures Order and applicable Law.
• Bid Protections: There is no break-up fee. The Initial Minimum Overbid Amount will be an amount equal to the sum of (i) one million dollars ($1.0mn) over and above the aggregate Purchase Price (as defined in the Stalking Horse Purchase Agreement) plus (ii) the DIP Obligations outstanding. 

Marketing Process

In a declaration filed in support of the Bidding Procedures Motion, Christopher A. Wilson, Managing Director in the Technology, Media & Telecom Group at the Debtors’ financial adviser Houlihan Lokey Capital, Inc., said Tacit, in collaboration with the ad hoc lender group, submitted a proposal for $5.0mn in DIP financing on August 20, 2020. After the Debtors informed Tacit that the proposed DIP sizing would not be enough to meet its liquidity needs, negotiations continued, resulting in the DIP size being increased to $15.0mn, $17.5mn, $30.0mn and, ultimately, $32.0mn. The final DIP Facility proposal was coupled with the going concern Credit Bid for substantially all of the Debtors’ assets.

Since the Petition Date, the Debtors have been actively pursuing a going-concern sale with all interested parties. The Debtors have contacted more than 40 potential bidders with written marketing materials, including 17 strategic companies in the fitness space and a range of distressed and private equity investors focused on multi-location concepts, health and wellness or other concepts related the Debtors’ business. Some of the contacted entities have either not shown interest in the Debtors’ assets or have otherwise indicated that they are not in a financial position to move forward with the sale process at this time. Moreover, the Debtors have received various additional inbound inquiries post-petition from potential going-concern buyers. To date, the Debtors have had various levels of contact and attendant discussions with nearly 50 potential bidders.

The Debtors, with the support of their advisors, intend to continue fully marketing the Debtors’ assets to determine whether there are any financially more advantageous alternatives to the Stalking Horse Bid, recognizing the Debtors precarious liquidity position and the market challenges facing the fitness industry."

About the Debtors

According to the Debtors: “Town Sports International Holdings, Inc. (the ‘Company’ or ‘TSI’), is a diversified holding company with subsidiaries engaged in a number of business and investment activities. The Company’s largest operating subsidiary, TSI, LLC, has been involved in the fitness industry since 1973 and has grown to become one of the largest owners and operators of fitness clubs in the Northeast region of the United States. TSI’s corporate structure provides flexibility to make investments across a broad spectrum of industries in order to create long-term value for shareholders. Town Sports International is led by its Chief Executive Officer and Chairman of the Board, Patrick Walsh.”

As of December 31, 2019, the Debtors owned and operated 186 fitness clubs and collectively served approximately 605,000 members.

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